Every year, the government collects an involuntary fee from people or corporations. Tax collection and payment are mandated by law in every government.
Also Read: Income Tax Return Filing
Although tax and taxation policies change from country to country, the primary goal of tax collection is to fund various government activities. The taxation system has existed in this globe for a long time.
Previously, an import tax was charged when things were sent to a specified country. There were several countries that imposed a consumption tax as well.
With the passage of time and the need for finances during wartime, governments began to tax several other components as well. They used to charge a tax on real estate, but only for a limited time.
In today’s world, there are many different forms of taxes. The GST and income tax are the two most prominent taxes in the modern age. Both of these taxes help the government in some way, but the taxation policies are different.
Income Tax vs. GST
The fundamental distinction between GST and Income Tax is that GST is levied on goods and services consumed, whereas Income Tax is levied on earnings. GST is an indirect tax, whereas income tax is a direct tax.
What exactly is GST?
GST stands for Goods and Services Tax and is a government-imposed indirect tax. A consumption tax is another name for it. GST is a multi-stage, destination-based tax that is deemed comprehensive.
It’s named comprehensive because it combines a number of indirect taxes into one. Central excise duty, services tax, additional customs duty, surcharges, and various value-added taxes have all been changed.
GST is a multi-staged taxation system that applies to every phase of the production process. The tax is paid by the final consumer when they buy the product or use the service, and it is refunded at various stages of manufacturing.
As the tax is levied on where it reaches rather than where it originated, it is known as a destination-based tax. As a result, the tax burden may be passed down from one generation to the next.
GST unifies all indirect taxes in the country. This taxation scheme prevents several levies from cascading.
As it is, the GST has eliminated the tax on tax, cutting commodities prices. GST is a technology-driven tax that can be filed electronically. GST registration is required for businesses with a yearly revenue of $20,000 or more. GST has enhanced a country’s tax collection.
What is income tax, exactly?
Income tax is a sort of tax imposed on yearly earnings. It is a tax levied by the government on a company’s earnings.
One of the government’s revenue streams is income tax. The tax revenue is used to fund a variety of projects across the country. The tax rate is related to the amount of money earned by an individual. The bigger the income, the higher the tax.
After all, income tax is a direct tax paid to the government. An individual must submit income tax if he or she earns more than 2.5 lakhs in a given year.
Personal income tax is another name for individual income tax. Another tax is the business income tax, which applies to corporations, partnerships, and self-employed individuals.
Individual income tax is a tax on a person’s annual earnings. It also covers a person’s business income for a certain fiscal year. Tax exemptions can be obtained in a variety of ways. If the money is invested in non-taxable forms, it does not constitute taxable income.
These exemptions mostly apply to loan repayments, insurance policies, and rent allowances. Medical exemptions can be used in a few instances to avoid paying taxes.
GST and Income Tax: What’s the Difference?
- Both taxes benefit the government in different ways. The fundamental distinction between GST and income tax is that GST is levied on goods and services consumed, whereas income tax is levied on income generated during a fiscal year.
- In terms of collecting, GST is an indirect tax paid to the government, whereas income tax is a direct tax paid to the government.
- GST is only charged when you buy a product or utilize a service, whereas income tax is charged on your pay, home, business revenue, and capital gain income.
- The tax burden of GST passes from the maker to the consumer, whereas there is no such transfer in income tax: A person must pay income tax if he or she earns enough money to meet the taxation threshold.
- Individuals must register for GST if their annual salary is higher than 2.5 lakhs.
Suggested Read: GST Consultancy Services
